search query: @indexterm HEDGING / total: 349
reference: 68 / 349
| Author: | Bauer, W. Ryser, M. |
| Title: | Risk management strategies for banks |
| Journal: | Journal of Banking and Finance
2004 : FEB, VOL. 28:2, p. 331-352 |
| Index terms: | Banking Risk management Strategy Hedging |
| Language: | eng |
| Abstract: | This paper analyzes optimal risk management strategies of a bank financed with deposits and equity in a one period model. The bank's motivation for risk management comes from deposits which can lead to bank runs. In the event of such a run, liquidation costs arise. The hedging strategy that maximizes the value of equity is derived. This paper identifies conditions under which well known results such as complete hedging, maximal speculation or irrelevance of the hedging decision are obtained. The initial debt ratio, the size of the liquidation costs, regulatory restrictions, the volatility of the risky asset and the spread btw. the riskless interest rate and the deposit rate are shown to be the important parameters that drive the bank's hedging decision. |
SCIMA